Stress Testing Expectations Come with Documentation Expectations Too

Banks use assumptions in stress tests all the time, such as core deposit assumptions or prepayment assumptions, which both figure in interest rate risk tests and liquidity risk tests. The practice of stress testing can’t be done without making educated guesses, Olson says and what banks and their examiners need to understand is that guesses are an integral part of stress testing and that [often] data won’t support them.